Pentair Reports a 45% Sales Increase in Q1 of 2005
Pentair announced its first quarter 2005 results, highlighting a 50 percent year-over-year increase in earnings per share (EPS) from continuing operations driven chiefly by share gains in robust Enclosures markets, ...
...stronger margins in Enclosures and in Pentair's heritage water businesses, and the contributions of the new water businesses.
Pentair's first quarter 2005 net sales totaled $709.6 million, up 45 percent from $488.5 million in the same period a year ago. Organic sales -- removing the effects of acquisitions and excluding favorable foreign currency exchange -- grew approximately five percent. Operating income for the first quarter totaled $76.4 million, 52 percent greater than the $50.1 million reported in the same period last year. First quarter 2005 EPS of $0.42 compares to first quarter 2004 EPS from continuing operations of $0.28. The $0.42 EPS includes a benefit of approximately one cent from a favorable settlement of a routine IRS exam for prior years resulting in a release of tax contingency reserves.
"We rate the first quarter of 2005 a solid success on the basis of a 45 percent gain in sales, a 52 percent improvement in operating income, a 50 percent increase in EPS, and a 50 basis point expansion in margins," said Randall J. Hogan, Pentair chairman and chief executive officer. "Organic growth of five percent was driven principally by nearly seven percent growth in North America and strong growth in China, offset somewhat by lower sales in Europe."
During the first quarter, Pentair used a net $98 million of cash to support the combined seasonality of the Sta-Rite and Pentair Pool operations as well as working capital requirements to facilitate the rationalization of Water operations and cash payments for various customer rebates and employee bonus plans. Capital expenditures were also higher due to construction of facilities in Mexico and China that will improve Pentair's cost structure and accommodate future growth. Pentair anticipates that cash flow for the first half of 2005 will be positive due to reductions in working capital projected in the second quarter. Pentair expects to exceed $200 million of free cash flow in 2005.
In the Water Group, first quarter 2005 sales of $512.1 million were 63 percent higher than the $314.0 million recorded in the same period last year. Strong Asian sales and improved North American sales of pumps, and foodservice, marine and recreational vehicle filtration sales drove organic growth. This growth was somewhat offset by the contraction of sales in Europe, resulting in organic growth for the Water Group in the low single digits.
First quarter 2005 operating income in the Water Group totalled $61.8 million, up from $41.5 million for the same period last year. Operating income margins of 12.1 percent in the first quarter reflect the lower initial margins of the former WICOR businesses. Pentair said the Water Group showed significant progress in closing the gap on the margin differential between the new Water Group and Pentair's heritage Water Group, from a gap of 230 basis points in the fourth quarter of 2004 to a gap of only 110 basis points in the first quarter of 2005.
Integration of the former WICOR businesses proceeded as expected during the quarter with 10 facilities closed or consolidated to date, and another five closings or consolidations in progress. In February, Pentair completed construction of a water products manufacturing facility near the campus of Pentair's existing operations in Reynosa, Mexico, and production began in March. Operations at the new facility will continue to ramp-up throughout 2005.
Pentair's Enclosures Group delivered 13 percent sales growth with first quarter 2005 sales totaling $197.9 million compared to a year-earlier total of $174.8 million. Sales in North America were very strong, offset by a small reduction in European sales. Pentair attributed the overall increase to market share gains driven by continued wins in targeted growth markets, the impact of new product introductions, and improved service and delivery, coupled with strong demand from North American industrial, commercial and technology markets.
First quarter operating income in the Enclosures Group increased 34 percent from the same period last year, totaling $25.9 million in 2005 versus $19.4 million in 2004. Margins reached 13.1 percent, expanding by 200 basis points over the first quarter 2004, and delivering the Enclosures Group's 13th consecutive quarter of sequential margin improvement. This performance was driven by higher volume in North America and productivity gains from the Pentair Integrated Management System and supply management initiatives.
"In both our Water and Enclosures businesses, we are capturing solid organic growth in those markets where we have executed our growth initiatives; now we need to replicate those successes, particularly in Europe. In operations, we continue to more than offset material cost inflation with pricing and productivity, the integration of the former WICOR businesses is progressing smoothly, and we continue to pursue acquisition opportunities in both Water and Enclosures," Hogan said. "Looking ahead to our second quarter results, we reiterate our expectation of EPS between $0.61 and $0.65, which is at minimum 45 percent higher than the same period in 2004. In addition, we are raising the low end of our previous 2005 EPS guidance from $1.95 to $2.00, while maintaining the high end of the range at $2.10."
Source: Pentair plc.